Market Turning Points

Precision
timing for all time frames through a 3-dimensional approach
to technical
analysis: Cycles - Breadth - P&F and Fibonacci price projections

"By the Law of Periodical Repetition, everything which has
happened once must happen again, and again, and again -- and not capriciously,
but at regular periods, and each thing in its own period, not another's,
and each obeying its own law... The same Nature which delights in periodical
repetition in the sky is the Nature which orders the affairs of the earth.
Let us not underrate the value of that hint." ~ Mark Twain

Current Position of the Market

Very Long-term trend - The very-long-term cycles are down and if they
make their lows when expected, the secular bear market which started in October
2007 should continue until about 2014-2015.

Long-term trend - In March 2009, the SPX began an upward corrective move
in the form of a mini bull market. Cycles point to a continuation of this trend.

SPX: Intermediate trend - The intermediate trend is still up and does
not look in immediate danger of reversing. Last week's action suggests that
a short-term top may be forming.

Analysis of the short-term trend is done on a daily basis with the
help of hourly charts. It is an important adjunct to the analysis of daily
and weekly charts which discusses the course of longer market trends. You can
sample some of the previous week's updates at the end of this article.

Daily
market analysis of the short term trend is reserved for subscribers. If you
would like to sign up for a FREE 4-week trial period of daily comments, please
let me know at ajg@cybertrails.com.

Long-term analysis:

Ever since its intermediate low of 1011, the SPX has marched steadily upward.
From the consolidation which took place just above 1173, we were able to derive
a Point & Figure projection of approximately 1312 to determine how far
the next move would carry.

Last Wednesday, the price moved up to 1299 and then started to trade in a
narrow range, struggling to move higher. On Friday, there was an early attempt
to resume the uptrend with the index reaching 1302.67 before giving up. From
that point on it was downhill for the rest of the day with a close of 1276.38.

Have we finally made a short-term top? We won't know for sure until next week.
There have been several indications over the past couple of weeks that one
was near. The SPX had almost reached its projected target. The daily indicators
had already given some fairly convincing sell signals. And, if you look at
the Weekly Chart (below), you will see that we were coming into some
resistance -- the intersection of a former resistance level with a long-term
resistance line. All the dashed lines on the chart have been drawn using reference
points from the long-term uptrend into the October 2007 top. They all provided
temporary stopping points for the bull market advance. Perhaps the same thing
is occuring here.

The struggle experienced by the SPX above 1995 looked very much as if short-term
distribution was taking place -- another sign that we might be reaching a high
point. Finally, the news from the Middle-East and the mass protests spreading
from Tunisia to Egypt and other countries was the trigger which caused the
dollar to bounce and to start the selling.

The weekly chart, so far, shows little damage to the intermediate trend. Last
week's range consisted of a higher high and higher low than the previous week's.
Also, there is no sign of deceleration in the trend with the index reaching
very close to the top of its intermediate (blue) channel.

There is little deceleration showing in the indicators, as well. The MACD
is just beginning to flatten out at a level which is well above its zero line.
The MSO, which had been overbought for a month, has started to come down (but
not from a position of negative divergence) indicating that a correction may
be starting. We will try to assess how much of a pull-back lies ahead by looking
at shorter-term charts.

Short-term projections and analysis

The Daily Chart (below) gives us a good look at the intermediate trend
channel (blue) which started at 1041. I have also drawn the red-dashed resistance
line mentioned above. This line could be one of the reasons why the SPX had
a problem getting above 1300. Another was the negative divergence which had
formed in the indicators, especially the middle one.

As of now, we still do not have a confirmed sell signal. Although this may
be just hours or days away, the SPX will have to break below the red support
line at 1271, as well as the green uptrend line which is drawn from the 1041
low, in order to indicate that a short-term top has been formed. It is no longer
likely that a final move to 1312 will occur, but there could be a few more
days of sideways trading above the trend line before prices break down. The
small distribution pattern which formed between 1294 and 1302 only has a maximum
projection of 1274 and, by the end of the day, on Friday, the index appeared
to be making a small base. Unless the Middle-East events take a turn for the
worse, there could be a time delay before the decline pushes lower.

Because of this possibility, I will be unable to estimate the extent of the
decline using the P&F chart until the larger distribution process is complete
and the SPX has traded below 1270.

Let's now look at the Hourly Chart. (This is where you can see the
value of keeping an hourly chart with good indicators.) The only existing ambiguity
was in the top MACD which did not signal clear negative divergence. That was
more than made up by the bottom oscillator of the A/D which, by Thursday, was
telling us that things were getting a little dicey! The middle indicator was
not exactly a paragon of strength, either.

As you will see in the sample updates below, the market action and the indicator
readings concerned me enough to start warning my subscribers on Wednesday to
be cautious. The sell signal came (and was communicated) when all the trend
lines were broken, especially when the SPX moved out of its brown channel.
As stated earlier, the small two-day distribution phase gives us a maximum
projection of 1274, which I have marked on the chart. This corresponds to a
support level derived from the former tops in early January, and the former
low of 1271.26. We have experienced good support at 1262, but if we have to
go that low to find it, we will already have broken the green trend line and
the 200-hr MA. This would confirm that we have made a short-term top.

After the third hour of trading, on Friday, the SPX refused to sell-off much
farther and started forming a little base which will either be expanded or
penetrated on Monday morning. By far the biggest volume came in the third hour
and it diminished substantially afterwards. A higher opening in the dollar
on Monday may generate enough weakness to break support. If there is little
weakness, we could extend the consolidation and even muster some retracement
of the decline before moving lower.

Cycles

Several cycles are scheduled to make their lows in the second and third week
of February, namely the 17-wk, 13-wk, 90-day, and 180-day. These could prove
to be the magnets which attract prices into that time period.

Breadth

Since its high of September 2009 (when it became extremely overbought), the
NYSE Summation Index (courtesy of StockCharts.com) has been declining
gradually. This is more of a normalization process than a sign of weakness.
However, since June 2010 the pattern reveals that intermediate deceleration
is setting in, and the last few weeks show some obvious negative divergence.
This is a warning that we are coming into some kind of a top, reinforced by
the fact that the RSI was unable to reach its normal rally height on the last
up-move, and has already started down.

Sentiment

I have learned to respect the signals given by the SentimenTrader (courtesy
of same) and, below, we can compare Friday's reading vs. that of two weeks
ago. Improved bullishness is very obvious, especially in the short term. This
indicator is telling us that the market may not exactly be ready to fall out
of bed.

Caveat bears

Dollar index

The indicators of the dollar ETF (UUP, above) had achieved oversold positions
and were ready for a bounce. Concern about stability in the Middle-East provided
that opportunity. That does not mean that this index is ready for an extended
uptrend. There is no divergence in the indicators, and the UUP is still a long
ways from suggesting that it is ready to break out of its downtrend. Although
the bounce could be extended, it is not yet likely to result in a full-scale
reversal.

The P&F chart continues to suggest that an important base may be under
construction, but more work needs to be done.

Gold

Because it is traded mostly by professionals, gold's line charts are the easiest
to analyze, and this goes double for the P&F chart (providing you know
what you're doing J). This is why P&F projections need to be respected.

Below is a daily chart of the gold ETF (GLD). After reaching an important
projection at 139, the index made a terminal distribution pattern which resulted
in some well-defined P&F counts. The absolute minimum one taken across
the first two tops from the right was 129 and it has already been surpassed.
This is a sign of weakness suggesting that the next projection (119-121) has
a good chance of being reached.

Because of the chart structure, it is probable that the blue intermediate
trend line will be broken. The lower indicator is oversold and signals a potential
bounce, but the MACD is in a steep downtrend which has already surpassed the
July low and shows no sign of having bottomed. Until we see some better price
and indicator action, the ETF is vulnerable to declining to its lower targets.

Top distribution phases and P&F projections have been identified on the
chart.

Summary

The market may be at an important short-term juncture. Friday's sell-off,
after the SPX had reached the last interim target of 1301 -- very near to its
projected final destination of 1310-1312 -- could mean that the end of the
rally from 1173 (and perhaps from 1041) has taken place.

It is important to let the market speak for itself and not to jump to premature
conclusions. As of Friday's close, only a near-term (interim) sell signal had
been given. More weakness and a daily close below 1270 will be needed to signify
that a short-term top has been reached.

FREE TRIAL SUBSCRIPTON

If precision in market timing for all time frames is
something which is important to you, you should consider a trial subscription
to my service. It is free, and you will have four weeks to evaluate its worth.
Here are some sample updates from the previous week:

Sent: Wednesday, January 26, 2011 2:08 PM Subject: Closing
Comment

Closing Comment: A supply/demand battle is being fought
at the 1299 level. Which way the SPX breaks will determine the short term
trend. Enough reversals have taken place across the 1298 level to send the
index 12 points in either direction. Although there is still no sell signal,
the hourly indicators are overbought with negative divergence in the A/D
oscillator. Unless we open strong, a move below 1294 should initiate
selling from traders.

Sent: Thursday, January 27, 2011 10:18 AM Subject: Market
Update

The SPX tested and held the 1294 level. So far, so good for
the bulls. But it's not out of the woods until it overcomes the 1300 level.
It could still be adding to a distribution pattern. The hourly indicators
are still dangerously near to giving a sell signal. Stay on your toes!

There is little pressure on prices this morning. This could
mean that 1301 is not going to be a significant stopping point. We'll see
what develops from here. For the uptrend to be broken, prices need to
decline below 1282 at a minimum, and preferably below 1272. A drop below
1294 could initiate a decline since a fair amount of trading has taken place
just above that level. However, the uptrend has been so persistent that
we'll have to make sure that some definite signs of weakness appear before
giving up on it. All the usual signs for a top are in place, but we will
probably need some sort of a trigger to get things started. A reversal in
the dollar remains the best possibility.

For further subscription options, payment plans, and for important
general information, I encourage you to visit my website at www.marketurningpoints.com.
It contains summaries of my background, my investment and trading strategies
and my unique method of intra-day communication to Market Turning Points subscribers.
I have also started an archive of former newsletters.

The above comments about the financial markets are based purely on what I
consider to be sound technical analysis principles uncompromised by fundamental
considerations. They represent my own opinion and are not meant to be construed
as trading or investment advice, but are offered as an analytical point of
view which might be of interest to those who follow stock market cycles and
technical analysis.